With healthcare reform having passed, how will the health insurance market look a few years from now? Although Mitt Romney may (or may not) deny it, Massachusetts has been a model for President Obama’s health reform bill. In 2006, Massachusetts passed its own health reform and when the share of uninsured residents was at 14%. By 2008, this figure had fallen to 2.6%. Let us now take a look at the specific reforms Massachusetts implement to increase coverage.
Based on the research of Doonan and Tull (2010), one can divide the Massachusetts expansion efforts into five broad categories.
- Medicaid Expansion. Massachusetts expanded Medicaid eligibility to all children below 300% of the federal poverty line (FPL) and all adults below 150% of the FPL.
- New subsidized health insurance exchange. Commonwealth Care is a program that provides aces to health insurance for individuals with incomes between 150% -300% FPL. The government subsidizes these plans depending on the individual’s income. The state moved individuals who were previously in the stat’s uncompensated care pool (UCP) to Commonwealth Care by restructuring the UCP so that copays, deductibles, and premiums were similar to those offered in Commonwealth Care.
- Insurance Exchange for Individuals and Small Businesses. Commonwealth Choice is a program that provides a number of unsubsidized insurance plans to individuals and small businesses (with 50 or fewer employees).
- Mandates. The Massachusetts legislature enacted an employer mandate and an individual mandate. The employer mandate stats that employers with more than 50 people who do not provide insurance must pay a “fair share” assessment of $295/employee/year. The state also mandates that all residents purchase insurance through an individual mandate. Each year, each Massachusetts resident must submit a Schedule HC to the Massachusetts Department of Revenue to verify that they do indeed have Connector-approved insurance. After a 90 day grace period, individuals are penalized each month that they are not insurance in the previous tax year. The penalty for not having health insurance in Massachusetts is generally much larger than what Congress is currently considering.
- Insurance Regulation. The Commonwealth Health Insurance Connector Authority (the Connector) created minimum standards for any insurance product to be offered in the state. Thus, individuals could not bypass the individual mandate by taking out a very inexpensive health insurance product with a $50,000 deductible. The Connector Board recommended that the minimum credible coverage (MCC) include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage. Doonan and Tull (2010) claim that the mandated benefits were fairly generous, but not out line with what private insurance companies previously had offered. Because there is more heterogeneity in insurance products across the country than within Massachusetts, Congress would have a much more difficult time determining a valid coverage minimum that did Massachusetts.
Through these measures, the number of uninsured individuals in Massachusetts has fallen. This chart shows where the newly enrolled residents received coverage. Previously Medicaid-eligible individuals who now have decided to sign up drives the 99,000 person increase in Medicaid enrollment. Employer coverage also rises by 83,000, mostly from workers who had previously had not taken-up employer health insurance offers. Of the total increase, only about 12% on newly insured individuals came from resident who purchased insurance in the newly formed Commonwealth Choice nongroup market.
Although many of the Massachusetts mandates may decrease resident choice, Doonan and Tull also explain how health reform regulations have increased health insurance options for many employees.
“Massachusetts reform also requires businesses with more than ten employees to establish Section 125 cafeteria plans. (Section 125 plans allow employees to choose, over wages, a range of benefits that do not count as taxable income.) Following this change, even if one’s employer does not offer health insurance, an employee can have insurance premiums deducted from his or her wages on a pretax basis, thereby avoiding federal and state payroll taxes.”
An interesting aspect of the state’s reform is that Massachusetts merges the small business (less than 50 employee) and nongroup insurance markets. “Health insurance in Massachusetts has actually become considerably less expensive in the nongroup or individual market and more expensive in the small-group market.” Nongroup premiums fell from by 40% over this time period even though similar plans rose 14% nationally.
Additionally, Massachusetts now offers a young adult plan (YAP). This is a less expensive, less comprehensive insurance product for individuals 19-26 years old.
One difference between the Massachusetts health reform and the federal one is the treatment of pre-existing conditions. According to Reihan Salam, in Massachusetts, “pre-existing condition exclusion periods can last up to 6 months.” In the federal case, there is no exclusionary period and thus the incentive to purchase insurance (and thus avoid a waiting period if one does get sick) is much stronger in Massachusetts. The Incidental Economist has more on this issue. Additionally, Massachusetts has guaranteed issue and modified community rating. The modified community ratings means that premiums can only vary by age and geography and the state legislature even regulated the maximum premium ratio.
- Michael T. Doonan and Katharine R. Tull (2010) “Health Care Reform in Massachusetts: Implementation of Coverage Expansions and a Health Insurance Mandate,” The Milbank Quarterly, Vol. 88, No. 1, 2010 (pp. 54–80).